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Brookfield Asset Management Gets Deeper Into the Solar Game

The company adds a pair of yieldcos to its portfolio of renewable energy assets.

Last month, Brookfield Asset Management(NYSE:BAM) announced it had reached agreements to bring a pair of green-energy yieldcos into its portfolio.

Canada's largest asset manager -- working with spinoff Brookfield Renewable Partners(NYSE:BEP), in which it holds a majority stake -- is purchasing TerraForm Global(NASDAQ:GLBL) outright and boosting its existing stake in the related TerraForm Power(NASDAQ:TERP) to 51%.

This will bolster the renewable energy portfolio of the Brookfield family of companies, which have been active in the segment for years. Is the deal worth the money it's laying out for the purchase, however? Let's unpack it to find out.

Partnering on the deal

Brookfield Asset Management has agreed to pay around $787 million and assume roughly $455 million in TerraForm Global's debt, in the deal. This puts its total commitment at around $1.24 billion. Brookfield Renewable Partners will contribute about $500 million in financing. Asset Management is to assume full ownership of TerraForm Global, plus become TerraForm Power's sponsor with the expanded stake.

Asset Management has not yet stated whether the two yieldcos will be shifted into Renewable Partners' asset portfolio, although that seems like the most logical development.

IMAGE SOURCE: GETTY IMAGES

The boards of directors of both TerraForm Power and TerraForm Global have approved the proposed transactions. The two deals are expected to close in the second half of this year.

The twin yieldcos are spinoffs of the once high-flying renewable energy purveyor SunEdison. They were cleaved into separate, publicly traded companies in 2014 and 2015. Subsequently, SunEdison filed for bankruptcy protection in April 2016.

Water, wind, and sun

Brookfield Asset Management is an old player in the renewable power game, stretching back decades. It readily points out that, thanks to Brookfield Renewable Partners, it is the world's largest operator of hydroelectric assets, with more than 200 such facilities on this continent and in South America.

In 2006, Asset Management made the logical jump into modern renewables, specifically wind power. These days Renewable Partners operates over 35 such facilities, which have enough capacity (1,600 megawatts) to provide electricity to more than 300,000 homes.

Still, hydro is the Brookfield family's core renewable; around 86% of its clean power portfolio is in the category.

Meaning that the purchase of the TerraForms will broaden and expand that list of assets considerably. TerraForm Power alone has nearly 3,000 megawatts of net capacity, based on ownership. This total is more or less evenly divided between solar and wind. Around 84% of that capacity is situated in North America.

TerraForm Global is smaller, with just under 920 megawatts through its operations in South America (Brazil and Uruguay), Asia (India, China, Malaysia, and Thailand), and South Africa. 61% of its portfolio is wind, with solar comprising the remainder.

This Fool's take

Brookfield Asset Management didn't specify how it would fund the deal. Regardless, it's well within the company's immediate financial means, as it held over C$10 billion ($7.5 billion) in cash and short-term investments at the end of its Q4 2016.

If it goes the borrowing route to any degree, the yieldcos won't add much to an already high pile -- Brookfield Asset Management had nearly C$92 billion ($69 billion) in debt at that time. Glancing at the profit and loss statement, we can see that the company's total interest expense clocked in at almost C$4.3 billion ($3.2 billion) during the fiscal year; if the deal is funded by loans, they won't move that number much higher.

Plus, Asset Management is saving a chunk of change with Renewable Partners' $500 million or so contribution. The latter says that "it expects to fund [this] through current liquidity."

If we make a crude calculation based on the approximate price per megawatt of net capacity purchased for that $1.24 billion sticker price, Brookfield is paying roughly $0.32 to control the pair of TerraForms. Considering that the deal gives it control of more than twice its renewables capacity at present, that looks like a very attractive price.

Author

Eric has been writing about stocks and finance since the mid-1990s, when he lived in Prague, Czech Republic. Over the course of a varied career, he has also been a radio newscaster, an investment banker, and a bass player in a selection of rock and roll bands. A native New Yorker, he currently lives in Los Angeles.